‘Tis The Season To Reorganize 中国互联网企业扎堆重组

I don’t know if anyone else has noticed this, but a lot of Chinese Internet firms suddenly seem to be engaged in a series of major reorganizations. I came to this conclusion after reading this morning that Suning.com (Shenzhen: 002024), one of China’s top e-commerce firms, has just undergone a major structural reorganization as part of what the company says is a regular exercise. (Chinese article) News of this latest reorganization comes the same week that headlines have been buzzing with news of another major reorganization at Tencent (HKEx: 700), China’s leading Internet company. (Chinese article)

But wait a minute, you’re probably saying to yourself, didn’t we also just see news of a major overhaul at e-commerce leader Alibaba, which recently reorganized itself into 25 major business units? (previous post) Alibaba was hardly a leader in this sudden strange race to reorganize, with leading web portal Sina (Nasdaq: SINA) and top Internet search engine Baidu (Nasdaq: BIDU) also both recently undergoing their own major internal overhauls.

I’ve been covering China’s tech industry for most of the last decade, and I have to admit that I’ve never seen anything like this sudden frenzied wave of reorganizations before. Perhaps it’s related to the Chinese zodiac, as it may be more auspicious to do this kind of overhaul in the Year of the Dragon, which is rapidly drawing to a close as we prepare to welcome the Year of the Snake on February 10.

But my guess is that the reasons behind this current wave of reorganizations are probably more practical, with 2 major factors at play. Perhaps most importantly, many of these companies that are now reorganizing are now far bigger than they were 5 or 6 years ago. Their rapid growth has been driven largely by China’s “me too” phenomenon, which sees companies often rush into other areas outside their core businesses as they look for growth.

Thus companies like Tencent, which began life as social networking specialists, now have myriad divisions ranging from its original social networking services, to online games, online video and e-commerce. As Tencent and others have added all these new businesses, they haven’t really made any major adjustments to their management structures, meaning reporting lines are often blurred and one manager may be responsible for several unrelated product areas.

That’s the first and perhaps most important reason for this sudden wave of reorganizations. The second reason appears to be the sudden recognition by everyone that the mobile Internet is the wave of the future, which increasingly does appears to be the case. Accordingly, a key element in many of these reorganizations seems to include giving mobile Internet divisions within each company the room they need to develop and become major contributors to future business.

Sina’s reorganization reportedly involved the splitting of the company into a traditional web portal business and a mobile unit, the latter of which would be based on the company’s popular Weibo microblogging service. Baidu’s founder Robin Li also reportedly said he would personally oversee his company’s mobile Internet division under its own reported reorganization, again underscoring the importance he places on that part of the business. Buzz surrounding the Tencent reorganization also says that mobile Internet will become a major unit going forward, following the rapid rise of the company’s WeChat mobile messaging service, also known locally as Weixin.

So, what do I think about this recent reorganizational frenzy? Frankly speaking, I find it a bit strange that everyone is reorganizing at the same time, and I do think that the reorganizations in half or more of these cases could ultimately create more confusion and chaos within the companies rather than improving management. Accordingly, look for quite a bit of management turmoil to emerge within many of these companies in the Year of the Snake, potentially leading to a period of slowing innovation in China’s vibrant Internet space.

Bottom line: The wave of reorganizations sweeping major Chinese web firms is likely to result in a period of management turmoil, resulting in less innovation on the Internet.

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This article was first published in the online edition of the South China Morning Post at www.scmp.com.

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